Uber Testifies in UK About Business-Model Issues

Adam Satariano, Bloomberg

- Oct 10, 2017 12:00 pm

Skift Take

Sooner — rather than later — Uber will need to address and reform its relationships with drivers. On the other hand, the company is already losing money, and treating drivers as employees could push Uber further into the red.

— Dennis Schaal

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Uber Technologies Inc. said its U.K. drivers would face broad changes if required to be classified as employees with benefits, a sign the company is considering alternatives to its labor model amid tighter scrutiny from regulators.

Uber would become more like a private-hire car service that exerts more control over when and where drivers work, Andrew Byrne, the head of public policy for Uber in the U.K. told a parliamentary hearing Tuesday.

The statement was a rare instance in which Uber said how it may adjust if a government implements new labor laws, a threat the company’s business is facing in cities around the world.

“It would change the nature of the relationship we would have with drivers,” he said, adding that classifying drivers as employees would add “tens of millions” in additional costs, including national health insurance taxes, and paying for covering minimum pay, sick and vacation time, and maternity and paternity leave.

The startup generated $1.75 billion in adjusted net revenue in the second quarter of this year, up 17 percent from the prior quarter. Uber narrowed losses by 9 percent to $645 million, based on financial results provided by the company.

Gig Economy

The worker debate goes to the heart of Uber’s business model. The company has relied on a network of workers who log-on through an app without much oversight from the company, arguing it shouldn’t have to classify drivers as workers because it’s a platform that connects drivers with people seeking a ride.

Presently, as long as a driver has a private-hire driver license and proof of insurance registered with Uber, they can log into the app to pick up passengers. Byrne indicated that flexibility would erode if drivers are classified as employees.

Byrne said drivers earn about 15 pounds ($19.8) per hour, though that doesn’t include the cost of fuel, insurance or car payments. The company said it couldn’t ensure drivers earn more than the minimum wage of 7.50 pounds an hour after those deductions are made.

U.K. policymakers are exploring new regulations for the so-called gig economy in which workers set their own hours at companies such as Uber, but are classified as self-employed contractors rather than staff members entitled to benefits. A U.K. government report published earlier this year concluded a better balance needed to ensure workers aren’t exploited, while also maintaining the flexibility many say they like about joining Uber and similar firms.

The report recommends more assurances for workers, including minimum pay and vacation time, as well as requiring companies to pay taxes for “dependent contractors” to cover government benefits.

Critics of the Uber model, including many taxi companies that have lost business as people have signed up to drive, say the companies are exploiting labor laws and other regulations to keep costs low and grow quickly. After hearing complaints from a group of Uber drivers, a U.K. employment tribunal also is deciding whether the company must provide more stable pay and benefits.

Driver Safety

Uber also faced questions about the safety risk of drivers on the road who are working long shifts. The company said it’s testing a function that would block drivers from using the app if they drove more than a maximum of driving 10 or 12 hours in a 24 hour period. Roughly a quarter of Uber drivers in the U.K. work more than 40 hours per week, the company said.

The hearing highlights the multiple ways Uber’s business is under scrutiny in the U.K. London transportation authorities revoked Uber’s license last month. The authorities said Uber hasn’t properly reported crimes or conducted adequate background checks, concluding the firm doesn’t pass the “fit and proper” test to operate.

The Independent Workers Union criticized regulators for not citing treatment of workers among the reason the city revoked Uber’s taxi license last month. A group of Uber drivers have been pushing the government to force the company to adopt more worker protections, including minimum wage and pay for vacation and sick time.